How Does For-profit College Attendance Affect Student Loans, Defaults and Labor Market Outcomes?

Abstract

For-profit providers are becoming an increasingly important fixture of US higher education markets. Students who attend for-profit institutions take on more educational debt, have worse labor market outcomes, and are more likely to default than students attending similarly-selective public schools. Because for-profits tend to serve students from more disadvantaged backgrounds, it is important to isolate the causal effect of for-profit enrollment on educational and labor market outcomes. We approach this problem using a novel instrument combined with more comprehensive data on student outcomes than has been employed in prior research. Our instrument leverages the interaction between changes in the demand for college due to labor demand shocks and the local supply of for-profit schools. We compare enrollment and postsecondary outcome changes across areas that experience similar labor demand shocks but that have different latent supply of for-profit institutions. The first-stage estimates show that students are much more likely to enroll in a for-profit institution for a given labor demand change when there is a higher supply of such schools in the base period. Among four-year students, for-profit enrollment leads to more loans, higher loan amounts, an increased likelihood of borrowing, an increased risk of default and worse labor market outcomes. Two-year for-profit students also take out more loans, have higher default rates and lower earnings. But, they are more likely to graduate and to earn over $25,000 per year (the median earnings of high school graduates). Finally, we show that for-profit entry and exit decisions are at most weakly responsive to labor demand shocks. Our results point to low returns to for-profit enrollment that have important implications for public investments in higher education as well as how students make postsecondary choices.

Where Do Students Go When For-Profit Colleges Lose Federal Aid?

“…The question of whether for-profit and public institutions compete for students is independently important given the overlap in programs offered by two-year public and for-profit institutions (e.g., Cellini 2009) and disparate costs (e.g., Laband andLentz 2004, Cellini 2012). Two recent papers examine enrollment spillovers between the for-profit and public sectors due to changes in prices, resources, or institutional availability and find evidence of substitution (Goodman and Volz forthcoming;Armona, Chakrabarti, and Lovenheim 2018). Similarly, our analysis contributes to broader debates in education policy as issues of competition and public-private crowd-out arise in debates over universal preschool, charter schools, and voucher programs (e.g., Epple, Figlio, and Romano 2004;Bassok, Fitzpatrick, and Loeb 2014).…”

The Labor Market Returns to For-Profit Higher Education: Evidence for Transfer Students

“…However, three significant papers find negative returns to for-profit 2-year degrees (Cellini & Turner, 2019; Deming et al, 2012; Denice, 2015). The results for 4-year students are much more negative; relative to 4-year students in public and not-for-profit colleges, employment rates and earnings are much lower for for-profit students (Armona, Chakrabarti, & Lovenheim, 2019; Bulman & Hoxby, 2015; Cellini & Turner, 2019; Deming et al, 2012; Deming, Yuchtman, Abulaifi, Goldin, & Katz, 2016; Denice, 2015).…”

State Investment in Higher Education: Effects on Human Capital Formation, Student Debt, and Long-Term Financial Outcomes of Students

“…When analyzing educational outcomes, we focus on the age 25 and 30 samples as well as an unbalanced panel of those up to the 1996 birth cohort ("ever" sample). 7 Online Appendix Table A-1 shows the cohorts used in our main analysis samples. Freshman age and cohort are defined as the age and year, respectively, in which each individual was first enrolled in college.…”